During December 2020, the Financial Sector Conduct Authority (FSCA) published a draft Conduct Standard setting out the principles and fit and proper requirements that Collective Investment Schemes (CIS) managers must comply with on an ongoing basis.
The current Board Notice (BN 910) dealing with matters pertaining to fit and proper requirements of CIS managers which was published in 2010, also dealt with licensing requirements however the draft Conduct Standard demarcates between the fit and proper requirements and licensing requirements. Accordingly, the licensing requirements will be provided for in a separate determination.
Summary of the Draft Conduct Standard
The draft Conduct Standard contains requirements relating to governance arrangements; obligations of the board; directors; competence; honesty, integrity and good standing; significant owners; financial soundness; operational ability; trustees and custodians; appointment of auditors; establishment of an audit committee; conflicts of interest and complaints management; risk management and liquidity risk management; portfolio applications and approval; winding up, amendment and amalgamation of a portfolio.
The fit and proper requirements for directors have been improved to ensure that each CIS manager appoints an executive director and to provide for clarity with regard to the meaning of an independent director. The draft Conduct Standard also provides for an updated complaint resolution procedure, additional conflict of interest requirements, liquidity risk management requirements as well as guidelines and requirements for the termination of portfolios in terms of section 102 of the Act.
The draft Conduct Standard further provides clarity to the existing requirements in respect of the confirmations required from the auditors pertaining to the administration systems to be used by the CIS manager, as well as the ongoing confirmations by the auditors in respect thereof. The requirement to establish an audit committee has also been included in the legislation, while the risk management framework has been improved to provide for a description of the framework.
According to the FSCA, there may be instances in which the implementation of the draft Conduct Standard could have some cost implication for CIS managers in aligning their business practices with the new requirements. However, the potential cost implication is expected to be minimal as CIS managers have already been implementing what is the vast majority of the draft Conduct Standard since 2010.
Interested parties are invited to submit comments on the draft Conduct Standard to the FSCA using the Comments Template by 15 February 2021 at FSCA.RFDStandards@fsca.co.za
Click below to read more:
- Draft Conduct Standard
- Statement in support of the draft Conduct Standard
- FSCA Communication 55 of 2020 (CIS)
- Download the Comments Template